The recession in Alberta will be its worst in at least three decades and will be among its longest as well, economists at TD Bank said in a new report.
The bank recently downgraded its forecast for the province, following the devastating wildfires in the Fort McMurray area in May. It now expects Alberta’s economy to shrink 3 per cent this year, for a total decline of 6.5 per cent since oil prices began falling nearly two years ago.
That’s the worst contraction on records going back to the recession of the early 1980s, nearly twice as deep as the average recession over that time.
Chart: TD Economics
TD sees the Alberta economy returning to growth next year, but output isn’t expected to recover until 2018, making this a four-year slump, matching the province’s 1982-1986 slump.
“Regardless, the stretch from 1982-86 is still likely to be regarded as the most challenging period in the post-war period in Alberta,” economists Derek Burleton, Diana Petramala and Warren Kirkland wrote.
That’s in part because the job situation in Alberta isn’t as bad as the economic situation overall. When it comes to jobs, TD describes it as an “average” recession.
It’s certainly not as bad jobs-wise as the early and mid-1980s, when Alberta saw two back-to-back recessions and unemployment hovered above 10 per cent for half a decade.
The jobless rate in Alberta last month was 7.9 per cent, the highest it’s been in this economic cycle. That’s up from around 4.5 per cent before oil prices began falling.
The TD Bank economists forecast a slower-than-normal economic recovery for Alberta starting next year, but they sound confident about the province’s long-term prospects.
Periods of boom followed by bust are no strangers to an economy that is tied to the vagaries of the global oil market.
— Derek Burleton, Diana Petramala, Warren Kirkland, TD Economics
The province faces mid-term challenges like a “lofty” budget deficit and adjusting to carbon pricing, but its relatively young and educated workforce, combined with an economy that is already the country’s wealthiest, will keep it going in the long run, TD said.
“Based on Alberta’s track record and comparative strengths, we remain confident in the province’s ability to successfully overcome the barriers erected in its path,” they wrote.